Free College on Wall Street's Tab? 5 Reasons the Finance Sector Should Pay for Full Tuition at Public Universities

It’s now crystal clear that our economy is not producing enough jobs for all who want and need them. It’s also clear that our economy is doing an excellent job at putting more and more wealth in the hands of the few. It’s time to change this equation with one simple proposal that would put millions of Americans back to work in a matter of months: free tuition at all public colleges and universities.

The spinmeisters can’t hide the fact that unemployment is still at horrendous levels and causing enormous suffering for millions of Americans. Job growth is so paltry that at this rate it will take over a decade to return to full employment. Worse still, there are 5.8 million Americans who have been unemployed for 27 weeks or longer, the highest number since the Great Depression. Meanwhile, Wall Street, which caused the economic collapse, is returning to record profits and bonuses. We can no longer afford to wait for the trickle-down economics to put our people back to work. And we can easily afford a free higher education program provided we have the nerve to make Wall Street pay for it.

We’ve Done it Before

At the close of WWII, policy planners worried that the return of 12 million soldiers to the civilian workforce would bring back the Great Depression. To combat this possibility, Congress passed the Servicemen’s Readjustment Act of 1944, which became known as the G.I. Bill of Rights. It provided $500 a year for GIs who attended technical or higher educational institutions, which was more than enough to pay tuition at any college in the country. (Harvard cost $400 a year at that time.) GIs who went to school also received a generous stipend as well. As a result, the number of college degrees more than doubled between 1940 and 1950. Overall, 7.8 million veterans went to school on the GI Bill.

Was it worth it? In 1988, the Joint Economic Committee analyzed the impact of the GI Bill on the economy. The program cost taxpayers approximately $70 billion (in 2010 dollars). However, the committee estimated that the GI Bill generated an extra $120 billion in federal tax revenues and $350 billion in extra national output. Overall, for every one dollar invested in this massive educational program, $6.90 was returned to the economy.

We Could Do it Again, Right Now

Today, students and parents pay approximately $50 billion per year in tuition for two- and four-year public institutions of higher learning. As a result, families have run up a mountain of debt – there are $850 billion in outstanding student loans (which is more than credit card debt). Clearly, the educational burden on family budgets is enormous. Through a program of free higher education we could dramatically improve our economy, almost overnight. Here’s a brief list of what such a massive dose of trickle-up economics could do for our society:

1. Millions of Unemployed Workers Would Go Back to School: Those without jobs, or stuck in dead-end, part-time jobs, are likely to rush back to school, especially if they are permitted to keep drawing on their unemployment benefits. But, even those without such benefits would see higher education as a way back into the modern global economy. We should expect the number of those entering college to double. It is highly likely that a free higher education program would drop the unemployment rate by 1 to 2 percent in a matter of months.

2. Colleges Would Generate a Major Construction and Work Boom: We can be certain that tuition-free higher education would lead to a dramatic expansion of public colleges and universities. New facilities and entire campuses would have to be constructed to meet the influx, and more faculty and staff would be hired. If, as expected, a free tuition program doubled the number of students at public colleges and universities, we could expect to add approximately 1 million additional jobs on campuses and in their surrounding communities – jobs that cannot be outsourced.

3. Family Finances Would Improve: The debt burden on college students and their families is enormous. Two-thirds of college graduates, today, leave with an average of $24,000 in student loans, more than double from a decade ago. With a free higher education program, millions of families would feel significant improvement in their net worth since they no longer would have to deplete savings or go into debt in order to send their children to college. Also, those graduating from college would no longer be saddled with enormous student loans. This increased sense of financial security would surely add to economic demand and further create jobs.

4. States Would Get Help with Their Budget Crises: Because of enormous budget pressures on state government, tuition costs at public institutions rose by 7.9 percent in 2010-'11, nearly twice as fast as tuition increases at private colleges and universities, and many times above the rate of inflation. At the moment states are slashing their contributions to higher education in order to close budget gaps caused by the Wall Street-induced economic crash, which will make tuition rise even faster. If tuition were covered by the federal government, the pressure to raise tuition and to cut back on state colleges and university programs and staff would be greatly reduced.

5. Our Workforce Would Improve Its Skills: It may be a cliché, but survival in a global economic system depends on working smarter. The most productive nations in the world figured that out years ago. European nations, for example, charge little or nothing in tuition and fees. England is the exception, but it has set a cap of $5,000 per year, and by law, tuition can rise no more than the rate of inflation each year. In China, higher education is free as is campus housing. We need to upgrade the skill levels and knowledge background of our entire workforce. As long as we participate in international trade on a large scale, then the free tuition program will help improve our competitive edge.

How and Why Wall Street Should Pay

Just in case any of us are suffering from financial amnesia, Wall Street’s reckless greed caused the economy to crash and caused the destruction of over 8 million jobs in a matter of months. We then bailed out our financial barons to limit the damage and now Wall Street again is making record profits and bonuses.

They owe us and they can afford to pay.

We should expect the yearly tab for a free tuition program to come to approximately $100 billion. It would be both just and economically smart to extract that money from the financial sector. The only question is how to do so.

The best approach would be through a financial transaction tax, which is a small fee on all stock, bond, currency and derivatives trades. This fee would be negligible for those of us who take care of our own 401(k)s and other investment accounts. But if you’re a hedge fund or a proprietary trading desk at Goldman Sachs or JP Morgan Chase, you’d be paying a small fee on the millions of transactions you engage in every day. Economist Dean Baker estimates that a small financial transaction tax could generate $100 billion per year – precisely what we need to make free higher education a reality in America (PDF). (In case, you’re worried that the financial industry would flee the country if only one nation instituted such a tax, England already has one that is working just fine.)

It’s Time to Choose What Kind of America We Want

We are rapidly headed toward a two-tiered society in which financial elites have nothing in common with the rest of us. While they commandeer outrageous profits, bonuses and bailouts, we suffer unemployment and debt. While they pay lower and lower taxes, we see public programs slashed in order to cut deficits. While they send their children to the best schools in the world, we must take out enormous loans to go to universities that are suffering cutbacks.

But we should never forget that we are the richest country in the history of the human race and have the means to create employment for the 20 million who are without work or are forced into part-time jobs. Free higher education is a proposal that can enrich us all by putting America back to work and having those who caused the unemployment crisis in the first place pay their fair share.

It’s a program nearly all Americans would support. Now all we need are politicians with the spine to fight for it.